Issue price of Bonds: The Bonds issuance shall be done at the price which is equal to present values of all the cash outflows to be discounted at market rate of interest. For the issuing company, there are two outflows over the lifetime off the bonds i.e. interest payments at stated rate over the lifetime at regular intervals and the repayment of par value of bonds at the end of maturity period. The Issue price of the bonds shall be taken as the sum total of present values of all outflows discounted at the market rate of interest. Bonds Issuance: The bonds issuance by the company is a source of long term financing and is issued at a discount or premium depending the prevailing market rate of interest and stated rate of interest on bonds. When the stated rate of interest is higher than the market rate of interest, then the investors will be ready to invest only in the situation when the bonds are issued at premium. This premium on bonds issue shall be treated as income by deducting the amortized portion from the cash interest paid to arrive at the interest expense of the period.When the market rate of interest is higher than stated rate of interest, then the bonds shall be issued at discount, which shall be kept as unamortized expenses in balance sheet to be amortized as an expenses over the period of bonds. However, when the market rate of interest is equal to stated rate of interest then the bonds are issued at par value. The determination of issue price of bonds when the market rate of interest is 8%.

Question

Want to see the full answer?

Answer 1

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 14, Problem 16E

Sub Part-1

To determine

Issue price of Bonds:

The Bonds issuance shall be done at the price which is equal to present values of all the cash outflows to be discounted at market rate of interest. For the issuing company, there are two outflows over the lifetime off the bonds i.e. interest payments at stated rate over the lifetime at regular intervals and the repayment of par value of bonds at the end of maturity period. The Issue price of the bonds shall be taken as the sum total of present values of all outflows discounted at the market rate of interest.

Bonds Issuance:

The bonds issuance by the company is a source of long term financing and is issued at a discount or premium depending the prevailing market rate of interest and stated rate of interest on bonds. When the stated rate of interest is higher than the market rate of interest, then the investors will be ready to invest only in the situation when the bonds are issued at premium. This premium on bonds issue shall be treated as income by deducting the amortized portion from the cash interest paid to arrive at the interest expense of the period.When the market rate of interest is higher than stated rate of interest, then the bonds shall be issued at discount, which shall be kept as unamortized expenses in balance sheet to be amortized as an expenses over the period of bonds.

However, when the market rate of interest is equal to stated rate of interest then the bonds are issued at par value.

The determination of issue price of bonds when the market rate of interest is 8%.

Sub Part-2

To determine

The Journal entry for the issuance of bonds.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

On January 1, 2024, Wright Transport sold four school buses to the Elmira School District. In exchange for the buses, Wright received a note requiring payment of $532,000 by Elmira on December 31, 2026. The effective interest rate is 8%. Note: Use appropriate factor(s) from the tables provided. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: How much sales revenue would Wright recognize on January 1, 2024, for this transaction? Prepare journal entries to record the sale of merchandise on January 1, 2024 (omit any entry that might be required for the cost of the goods sold), the December 31, 2024, interest accrual, the December 31, 2025, interest accrual, and receipt of payment of the note on December 31, 2026.

Johnson Company calculates its allowance for uncollectible accounts as 10% of its ending balance in gross accounts receivable. The allowance for uncollectible accounts had a credit balance of $28,000 at the beginning of 2024. No previously written-off accounts receivable were reinstated during 2024. At 12/31/2024, gross accounts receivable totaled $466,700, and prior to recording the adjusting entry to recognize bad debts expense for 2024, the allowance for uncollectible accounts had a debit balance of 51,300. Required: Assume Johnson made no other adjustment of the allowance for uncollectible accounts during 2024. Determine the amount of accounts receivable written off during 2024. If Johnson instead used the direct write-off method, what would bad debt expense be for 2024?

Johnson Company calculates its allowance for uncollectible accounts as 10% of its ending balance in gross accounts receivable. The allowance for uncollectible accounts had a credit balance of $28,000 at the beginning of 2024. No previously written-off accounts receivable were reinstated during 2024. At 12/31/2024, gross accounts receivable totaled $466,700, and prior to recording the adjusting entry to recognize bad debts expense for 2024, the allowance for uncollectible accounts had a debit balance of 51,300. Required: What was the balance in gross accounts receivable as of 12/31/2023? What journal entry should Johnson record to recognize bad debt expense for 2024? Assume Johnson made no other adjustment of the allowance for uncollectible accounts during 2024. Determine the amount of accounts receivable written off during 2024. If Johnson instead used the direct write-off method, what would bad debt expense be for 2024?

Answer 2

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 14, Problem 16E

Sub Part-1

To determine

Issue price of Bonds:

The Bonds issuance shall be done at the price which is equal to present values of all the cash outflows to be discounted at market rate of interest. For the issuing company, there are two outflows over the lifetime off the bonds i.e. interest payments at stated rate over the lifetime at regular intervals and the repayment of par value of bonds at the end of maturity period. The Issue price of the bonds shall be taken as the sum total of present values of all outflows discounted at the market rate of interest.

Bonds Issuance:

The bonds issuance by the company is a source of long term financing and is issued at a discount or premium depending the prevailing market rate of interest and stated rate of interest on bonds. When the stated rate of interest is higher than the market rate of interest, then the investors will be ready to invest only in the situation when the bonds are issued at premium. This premium on bonds issue shall be treated as income by deducting the amortized portion from the cash interest paid to arrive at the interest expense of the period.When the market rate of interest is higher than stated rate of interest, then the bonds shall be issued at discount, which shall be kept as unamortized expenses in balance sheet to be amortized as an expenses over the period of bonds.

However, when the market rate of interest is equal to stated rate of interest then the bonds are issued at par value.

The determination of issue price of bonds when the market rate of interest is 8%.

Sub Part-2

To determine

The Journal entry for the issuance of bonds.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 3

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 14, Problem 16E

Sub Part-1

To determine

Issue price of Bonds:

The Bonds issuance shall be done at the price which is equal to present values of all the cash outflows to be discounted at market rate of interest. For the issuing company, there are two outflows over the lifetime off the bonds i.e. interest payments at stated rate over the lifetime at regular intervals and the repayment of par value of bonds at the end of maturity period. The Issue price of the bonds shall be taken as the sum total of present values of all outflows discounted at the market rate of interest.

Bonds Issuance:

The bonds issuance by the company is a source of long term financing and is issued at a discount or premium depending the prevailing market rate of interest and stated rate of interest on bonds. When the stated rate of interest is higher than the market rate of interest, then the investors will be ready to invest only in the situation when the bonds are issued at premium. This premium on bonds issue shall be treated as income by deducting the amortized portion from the cash interest paid to arrive at the interest expense of the period.When the market rate of interest is higher than stated rate of interest, then the bonds shall be issued at discount, which shall be kept as unamortized expenses in balance sheet to be amortized as an expenses over the period of bonds.

However, when the market rate of interest is equal to stated rate of interest then the bonds are issued at par value.

The determination of issue price of bonds when the market rate of interest is 8%.

Sub Part-2

To determine

The Journal entry for the issuance of bonds.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 4

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 14, Problem 16E

Sub Part-1

To determine